PDD Holdings Inc. Sponsored ADR (PDD) has been on a downward spiral lately with significant selling pressure. After declining 13.9% over the past four weeks, the stock looks well positioned for a trend reversal as it is now in oversold territory and there is strong agreement among Wall Street analysts that the company will report better earnings than they predicted earlier.Here is How to Spot Oversold StocksWe use Relative Strength Index (RSI), one of the most commonly used technical indicators, for spottin ...

Core Viewpoint - The Zacks Diversified Operations industry is expected to benefit from growth in aerospace, defense, and oil & gas sectors, driven by strong demand in commercial aviation and medical markets, alongside infrastructure development and technological advancements [1][4]. Industry Overview - The Zacks Diversified Operations industry encompasses companies across various sectors, including oil and gas, industrial, electronics, aviation, and healthcare, providing equipment and solutions such as gas turbines, commercial jet engines, and bioprocessing products [3]. - Industry players also offer services in agriculture, marine, and telecommunications, with a significant global presence in markets like the U.S., Japan, India, and China [4]. Major Trends - **Strength in Aerospace & Defense Markets**: The industry benefits from strong demand in defense and governmental sectors, increased oil and gas exploration, and infrastructure development, with commercial aviation markets showing healthy growth [4]. - **Investments in Innovation & Technological Advancements**: Continuous focus on innovation and digitization is expected to enhance operational productivity and product quality, driving growth in the industry [5]. - **Weakness in the Manufacturing Sector**: The manufacturing sector is experiencing persistent weakness, with the Manufacturing Purchasing Manager's Index at 46.5% in October, indicating contraction [6][7]. - **Supply-Chain Disruptions**: Ongoing supply-chain issues, particularly regarding electrical and electronic components, are a concern for industry participants, as reflected in slower deliveries [8]. Industry Performance - The Zacks Diversified Operations industry holds a Zacks Industry Rank of 61, placing it in the top 24% of over 250 Zacks industries, indicating strong prospects [9][10]. - The industry's earnings estimates for the current year have increased by 14.4% over the past year, reflecting positive sentiment among analysts [11]. - Over the past year, the industry has underperformed the S&P 500, rising 13.7% compared to the S&P 500's 36.6% growth [13]. Current Valuation - The industry is currently trading at a forward P/E of 15.42X, compared to the S&P 500's 22.43X, with historical trading ranges between 15.42X and 38.15X over the past five years [14]. Notable Stocks - **PDD Holdings**: This multinational commerce group is benefiting from its strong e-commerce business model, with a 16.2% increase in shares over the past year and a 0.5% upward revision in 2024 earnings estimates [15][16]. - **Federal Signal**: This company is well-positioned to benefit from robust aftermarket demand and has seen a 38.9% increase in shares over the past year, with a 1.2% upward revision in 2024 earnings estimates [17][18].

Investment Rating - The report downgrades Pinduoduo (PDD US) to a **Neutral** rating, with a current price of US$122.15 and a target price of US$130.00 [1][5] Core Views - Pinduoduo's domestic business remains robust, with Q3 2024 revenue expected to exceed Bloomberg consensus estimates by 1.8%, reaching RMB 104.4 billion, driven by a 51.6% YoY growth [7] - Adjusted net profit for Q3 2024 is projected at RMB 31.3 billion, 7.2% above consensus, with a net profit margin of 30% [7] - Despite strong performance, mid-to-long-term stock price pressure is expected due to unresolved geopolitical risks, particularly US tariff policies affecting TEMU [7][18] - The report assigns a 25% discount to TEMU's valuation, reflecting market concerns over potential tariff impacts, leading to a revised target price of US$130 [18] Financial Performance - Revenue for 2024E is forecasted at RMB 414.07 billion, a 67% YoY increase, with net profit expected to grow 88% YoY to RMB 127.7 billion [4] - Gross profit margin (GPM) is projected to stabilize at 63.6% in 2024E, slightly up from 63.0% in 2023A [4] - ROE is expected to decline from 72.2% in 2023A to 50.8% in 2024E, reflecting higher equity base and operational challenges [4] - P/E ratio is estimated at 10x for 2024E, down from 19x in 2023A, indicating a more attractive valuation [4] Geopolitical Risks - Trump's potential tariff policies, including a 10% universal tariff and a 60% tariff on Chinese goods, could severely impact TEMU's price competitiveness and profitability [11][12] - TEMU may face challenges in passing tariff costs to consumers or merchants, potentially eroding its price advantage and squeezing margins [12] - Biden's proposed reforms to the 1974 Trade Act, including adjustments to the $800 de minimis threshold, are unlikely to significantly affect TEMU [14][15] Valuation and Market Sentiment - Pinduoduo's core platform business is valued at 12x 2024E PER, based on a projected GMV of RMB 4.9 trillion and operating profit of RMB 141.5 billion [18] - Despite a market cap of US$169.64 billion, representing a 10x 2024E valuation, the stock is considered one of the most cost-effective options in China's e-commerce sector [18] - Market sentiment remains fragile, with geopolitical risks overshadowing strong domestic performance, leading to a downgrade to Neutral [18]

Company Overview - PDD Holdings, founded by Colin Huang, experienced a significant drop in share price, nearly 30% in one day, due to investor concerns over slower profit growth forecasts [2] - Despite the drop, shares have since recovered amid a broader stock rally in China, positioning Huang at No. 4 among China's richest with a net worth of $43.9 billion [2] Financial Performance - In Q2 2024, PDD reported a 144% increase in net income to 32 billion yuan ($4.5 billion), although this was lower than the previous quarter's more than threefold increase [3] - The company indicated that future earnings would be impacted by increased investments in its supply chain and a 10 billion yuan reduction in fees charged to vendors [3] Market Position and Competition - PDD's Pinduoduo app remains popular among Chinese consumers seeking discounted products, such as $13 winter coats [4] - The company faces intense competition from rivals Alibaba and JD.com, and is encountering challenges in expanding internationally with its Temu app [4] - Indonesian authorities have requested Apple and Google to block the Temu app from their app stores due to concerns over low-cost goods, although PDD asserts that Temu complies with local laws [4]

Core Viewpoint - Growth stocks are appealing due to their potential for above-average financial growth, but identifying strong growth stocks can be challenging due to associated risks and volatility [1] Group 1: Company Overview - PDD Holdings Inc. Sponsored ADR is highlighted as a recommended growth stock based on the Zacks Growth Style Score, which evaluates a company's real growth prospects beyond traditional metrics [2] - The company has a favorable Growth Score and a top Zacks Rank, indicating strong potential for performance [2][10] Group 2: Earnings Growth - PDD Holdings Inc. has a historical EPS growth rate of 290.2%, with projected EPS growth of 83.1% for the current year, significantly outperforming the industry average of 11.1% [5] Group 3: Cash Flow Growth - The year-over-year cash flow growth for PDD Holdings Inc. is 76.3%, which is substantially higher than the industry average of -7.7% [6] - The company's annualized cash flow growth rate over the past 3-5 years is 52.5%, compared to the industry average of 9.7% [7] Group 4: Earnings Estimate Revisions - There have been upward revisions in current-year earnings estimates for PDD Holdings Inc., with the Zacks Consensus Estimate increasing by 1.3% over the past month [9] - Positive trends in earnings estimate revisions correlate strongly with near-term stock price movements, further validating the company's growth potential [8] Group 5: Investment Conclusion - PDD Holdings Inc. has achieved a Growth Score of A and a Zacks Rank of 2, indicating it is a solid choice for growth investors and a potential outperformer [10][11]

Group 1 - PDD Holdings is experiencing growing attraction for brands, which is expected to enhance its stickiness over time [1] - The developments are likely to drive higher domestic GMV share growth for PDD Holdings [1] - PDD Holdings aims to maintain its high take rate amidst these changes [1] Group 2 - Astrada Advisors provides actionable recommendations to enhance portfolio performance and uncover alpha opportunities [2] - The firm has a strong track record in investment research across technology, media, internet, and consumer sectors in North America and Asia [2] - Astrada Advisors integrates rigorous fundamental analysis with data-driven insights to offer a nuanced understanding of key trends and competitive landscapes [2]

Group 1: Market Performance - Chinese tech and consumer stocks, including PDD Holdings, GDS Holdings, and Full Truck Alliance, experienced significant rallies of 3.5%, 2.9%, and 6.8% respectively, driven by renewed hopes for stimulus measures from the government [1] - Chinese stocks had previously rallied from mid-September to early October due to interest rate cuts and expectations of fiscal stimulus, although this rally had faded due to vague details around the stimulus [2] - Chinese company buybacks reached a record high in 2024, with $33 billion in repurchases, more than doubling the 2023 figures, indicating strong corporate confidence and government support for the stock market [3] Group 2: Economic Indicators - China's third-quarter GDP growth was reported at 4.6%, slightly above the expected 4.5%, but still below the government's 5% growth target, suggesting a need for further stimulus [2] - The People's Bank of China cut both the one-year and five-year loan prime rates by 25 basis points, marking the first rate cuts since July, aimed at stimulating economic activity [2] Group 3: Company Insights - PDD Holdings is recognized as the fastest-growing e-commerce platform in China, while GDS Holdings operates data centers, and Full Truck Alliance serves as a digital freight platform, all of which are closely tied to consumer spending and economic growth [4] - The recent economic and stimulus news has positively impacted the stock prices of these companies, reflecting their sensitivity to market conditions [4] Group 4: Investor Sentiment - There is skepticism among investors regarding the sustainability of the recent rally, given the government's past actions, including strict COVID-19 measures and crackdowns on major tech companies [5][6] - Current measures announced by the government, such as interest rate cuts and stock buyback support, are seen as insufficient without direct fiscal stimulus to households, which is necessary to boost consumer demand [7]

Investment Rating - The report maintains a "Buy" rating for Pinduoduo (PDD US) with a target price adjusted to $188, indicating a potential upside of 50.9% from the current price of $124.62 [1][6]. Core Insights - The report highlights the implementation of a 10 billion RMB subsidy policy aimed at supporting merchants, which is expected to stabilize profit growth. The forecast for Q3 indicates a net profit of approximately 30.6 billion RMB, with a year-on-year growth rate of 80% [1]. - The report anticipates that both GMV and company profits will continue to grow at double-digit rates through 2025, despite a downward adjustment in revenue and profit forecasts for Q3 due to the subsidy policy [1][4]. - The financial projections for 2024 and 2025 show an expected adjusted net profit growth of 93% and 29%, respectively, with a focus on maintaining a stable monetization rate despite the subsidy initiatives [1][4]. Financial Projections - Revenue for 2024 is projected at 404.273 billion RMB, a decrease of 3.1% from previous estimates, while 2025 revenue is expected to be 538.332 billion RMB, down 3.8% [3]. - Adjusted net profit for 2024 is forecasted at 130.869 billion RMB, reflecting a 5.7% reduction from prior estimates, with a further increase to 168.736 billion RMB in 2025 [3][7]. - The gross profit margin is expected to be 64.3% in 2024, slightly down from previous estimates, while the adjusted operating profit margin is projected at 32.1% [3][7]. Market Performance - The stock has experienced a year-to-date decline of 14.82%, with a 52-week high of $157.57 and a low of $89.17 [2][4]. - The average daily trading volume is reported at 11.90 million shares, indicating active market participation [2]. Strategic Initiatives - The report details several strategic initiatives under the subsidy policy, including reductions in service fees and promotional costs, aimed at enhancing merchant profitability and competitiveness [1][4]. - The anticipated performance of TEMU in the U.S. market is expected to reach breakeven by 2025, contributing positively to overall profitability [1].

Company Performance - PDD Holdings Inc. Sponsored ADR closed at $127.43, reflecting a -0.61% change from the previous day's closing price, underperforming the S&P 500 which gained 0.47% [1] - Over the past month, shares of PDD have appreciated by 30.32%, outperforming the Conglomerates sector's gain of 6.52% and the S&P 500's gain of 3.48% [1] - The upcoming earnings release is expected to show an EPS of $2.74, indicating a 76.77% growth year-over-year, with revenue forecasted at $14.17 billion, representing a 50.15% increase compared to the same quarter last year [1] Annual Estimates - For the annual period, Zacks Consensus Estimates project earnings of $11.95 per share and revenue of $55.97 billion, reflecting increases of +82.16% and +61.55% respectively from the previous year [2] Analyst Outlook - Recent changes in analyst estimates for PDD Holdings indicate a favorable outlook on the company's business health and profitability, with positive revisions suggesting potential stock price performance [2] - The Zacks Rank system, which ranges from 1 (Strong Buy) to 5 (Strong Sell), currently ranks PDD Holdings at 3 (Hold) [3] Valuation Metrics - PDD Holdings is trading at a Forward P/E ratio of 10.73, which is below the industry average Forward P/E of 18.74, suggesting it is trading at a discount [3] - The company has a PEG ratio of 0.29, significantly lower than the Diversified Operations industry's average PEG ratio of 1.87 [3] Industry Context - The Diversified Operations industry, part of the Conglomerates sector, holds a Zacks Industry Rank of 93, placing it in the top 37% of over 250 industries [4] - The top 50% rated industries, as per the Zacks Industry Rank, tend to outperform the bottom half by a factor of 2 to 1 [4]

Group 1 - The core viewpoint is a bullish stance on PDD Holdings, with a target share price of at least $200, indicating a 30% upside potential from the current level [1] Group 2 - Astrada Advisors specializes in delivering actionable investment recommendations that enhance portfolio performance and uncover alpha opportunities, backed by a strong track record in investment research [2] - The firm has expertise in technology, media, internet, and consumer sectors across North America and Asia, allowing it to identify high-potential investments and navigate complex industries [2] - Astrada Advisors integrates rigorous fundamental analysis with data-driven insights to provide a nuanced understanding of key trends, growth drivers, and competitive landscapes [2] - The focus of Astrada Advisors is to empower investors with timely research and a comprehensive view of industry dynamics, especially in volatile markets or when exploring new trends [2]